demand in the US is down big time at the same time we have the highest prices on record for this time of year.
Its pretty normal and reasonably expected that higher prices would rive down demand.
when 2/3 of those controlling the gasoline market are NOT end users(therefore speculators) then distortion will occur.
Speculators move prices in both directions. Also they can only cause prices to deviate from what the market would support for a limited time and to a limited amount, when the goal is to make money, and the market is highly liquid.
Speculators lose money when they buy high and sell low. To make money they have to help smooth out prices, buying low and selling high (not necessarily in that order).
If their activities did drive prices up, they would decrease demand and increase supply. If the new price doesn't clear the market because of lower demand and extra supply then the price would go down. To keep the price up someone would have to be accumulating a massive stockpile of oil keeping it off the market. that isn't happening (at least not to an extent to support artificially high prices in such a large and liquid market as the oil markets) Well producers could just keep it in the ground instead, but if they aren't pumping it that's lower supply, so your back to the price being a factor of normal supply and demand.
Are you telling me there was no housing bubble?
Housing is illiquid. Also housing doesn't get rapidly consumed. Also housing prices where pushed higher by all sorts of government interventions mortgage interest destructibility, Fannie, Freddie, pressure on banks to expand lending to poor credit risks, rules for banks that counted mortgage backed securities as much safer that other investments, etc.
Stocks, also prone to bubbles, are more liquid, and less government supported, than housing, but stocks are not rapidly consumed either, they represent the ownership of an ongoing company and their price indirectly represents an estimate of the future value of the company, which can change rapidly as conditions change.
In any case I didn't say that oil can't be subject to a bubble (although its much less likely to do so given the nature of the market for oil), but that speculators can't push the price around in one direction, by a significant amount of a significant time and hope to profit from it. The market is probably too large to be cornered, and even an attempt at doing so would require massive stockpiles. A bubble is different than such a cornering attempt. A bubble happens when people in the market think prices are just going to keep going up and up, it reflects widespread opinion about the future of the commodity in question, not some narrow artificial manipulation, at least not for broad and liquid markets.
If there was any such attempt to push the price of oil well above the market clearing rate, it would fall apart without an massive increase in oil stockpiles. And even with such an increase (which hasn't really happened), it would be hard for the instigators of the plan to profit by it since they would have to sell the oil to make the profit. The extra demand for the stockpile would push the price up as the stockpile grows, increasing what is paid for it, then the selling of the stockpile to recognize the profit, would push the price down. Meanwhile there is likely interest costs, or at least time value of money concerns, on all the money used to initially buy the oil. Look at when the Hunts tried to corner the silver market. They lost their shirts. And silver is a much smaller market then oil. |
